China's Export Campaign Portends Big Purchases

Peking appears on the verge of a new round of major overseas capital purchases financed through higher prices on its own exports.

Businessmen and economists here say the Chinese have indicated they will significantly raise prices at the upcoming autumn export commodities fair i Canton, apparently to provide more foreign exchange to purchase much-needed oil extraction and machine tool equipment. They have already begun an aggresive export campaign, boosting by 11 per cent first half sales to their five leading trading partners - Japan, Hong Kong, West Germany, the United States and Britain.

Despite the Chinese insistence tha "our socialist country does not permit foreign capital to develop our country's resources," they seem ready again to accept a form of foreign debt wrapped in sheep's clothing called progress payments or deferred payments. Under such arrangements in the early 1970s, the Chinese bought more than $2 billion in complete fertilizer, steel, petrchemical and power plants with down payments of only 10 or 20 per cent.

Two U.S. government trade experts writing in a recent edition of The China Business Review, David L. Denny of the Commerce Department and Frederic M. Surls of the Agriculture Department, show that Peking still has $1.4 billion in oustanding obligations this year from the major purchases made from 1972 through 1974.

China's ratio of repayments to hard currency earnings reached 23 per cent last year, ut this debt now seems to be declining, opening the way for a new round of disguised borrowings that will require a modest initial financial obligation, they say.

Since major new plant purchases during 1977 would not create significant repayment obligations until 1979 and later, there would appear to be no immediate financial constraint on substantial complete plant purchases. Even if only modest rates of export growth are projected, the latter should hold true, Denny and Surls conclude.

Whether American companies will benefit from this new Chinese spending spree is a matter of dispute.

TChinese purchases of U.S. goods in the first half of this year totaled an estimated $62 million, barely half of what they were in the first half of last year. At least one analyst here suggsts the Chinese have cut U.S. imports to signal their displeasure over Washington's failure to open full diplomatic relations with Peking.

But other sources active in the Sino-America trade do not accept this interpretation.

Those figures do not include many deals arising out of the Canton trade fair held in April and May.

"The Chinese were still recovering from last year's political difficulties in the first few months of this year," one trade said. "And the reports I am getting say there will be some major purchases in the second half of this year."

Many China trade specialists are encouraged by the visit to the U.S. this month of the chairman of the China Council for Promotion of International Trade, Wang Yao-Ting. He is perhaps the most senior Chinese officila et to participate in an extensive U.S. tour.

There are also reports of business done by a delegation of Chinese petroleum equipment experts who contacts, the question of politics does not come up at all," one source familiar with the tours said.

In its latest major pronouncement on economic policy Sept. 11, Peking said "We must learn from other countries and introduce their advanced technology to meet our needs.

In 1975 and 1976 some members of the Chinese Communist Party Politburo sharly criticized the purchase of foreign equipment with funds raised through export of Chinese raw materials like oil. This was called a violation of chairman Mao Tse-tung's call for self-reliance. But the anti-trade group in the Peking leadership was purged late last year after Mao's death. Chinese officials have been promising a return to its former trade policy ever since.

The political disputes of 1975 and 1976 caused a drop in Chinese oil sales just as China's financial obligations began to mount. Denny and Surls suggest the Chinese were genuinely worried that this might have hurt Peking's international reputation for a blue chip credit rating.

That does not seem to be the case. Potential sellers in several Western countries and Japan appear willing to do their own borrowing from their own banks so that they can afford to extend to the Chinese the kind of deferred payment schemes Peking prefers to old-fashioned debt.

Under progress payments, a technique used widely in such purchase around the world, the Chinese in the early 1970s bought some complete plants with a 20 per cent down payment. Then they paid 70 per cent as the equipment was shipped and a final 10 per cent after one year of operation, according to Denny and Surls.

Deferred payment schemes for other plants included a 10 per cent down payment at contract signing, another 10 per cent at final shipment and the remaining 80 per cent paid over a five-year period.

Shortly before they began their major purchases in the early 1970s, trade experts here recall the Chinese sharply raised the prices of many goods they were selling abroad in exchange.

"In a repeat of history," one trader said, "I expect there to be increases at the next fair and very sizeable ones."